Risk Management and Its Types

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Table of Contents

Introduction
Operational risks
Social risk
Conclusion
Works Cited

Introduction

Risk management refers to the process of identifying, assessing, and prioritizing risks, as well as consequent application of measures to monitor, minimize, and control their effects (Frame 53).

Risks emanate from several occurrences such as financial uncertainties, project failures, legal liabilities, credit difficulties, accidents, and other unpredictable events. Risk management standards apply avoidance of risks by organizations.

Methods, goals, and definitions of risk standards depend on field of application. Types of risks include social risks, operational risks, financial risks, credit risks, currency risks, quantitative risks, market risks, and project risks (Frenkel and Rudolf 26).

Types of risk management differ based on an organization’s goals, objectives, and operations. Risk management plays a vital role in promoting organizational growth and success.

Operational risks

Operational risks refer to risks encountered by organizations owing loses experienced from execution of internal activities. Operational risk management focuses on mitigating risks incurred due to operations executed by organizational systems and people.

Operational risks include fraud, physical risks, and legal risks (Hutter and Power 33). Basel II regulations define operational risk as probability of an organization’s exposure to failures in operations, systems, or people due to certain events external to an organization (Frenkel and Rudolf 36).

The difference between operational risk management and other types of risk management is that operational risk management does not earn profits for organizations. Organizations are aware that people, systems, and organizational processes are prone to errors that expose them to losses.

The degree of losses that an organization is willing and ready to handle determines its ability to manage operational risk (Hutter and Power 34).

Types of operational risks include employee errors, system failures, fraud, criminal activity, and natural disasters such as floods and fire (Hutter and Power 35).

Internal processes such as employee training, staff development, media communication, stakeholder management, and product or service development are common sources of operational risks (Hopkin 31).

Other examples include employment practices, execution and process management, workplace safety, and business practices (Khatta 34). Operational risk arises from failures or weaknesses in these processes (Frenkel and Rudolf 29).

For example, if employee training does not give desired results or stakeholder management does not meet goals and objectives, operational risks arise.

Attributes of operational risks include emotional effects, financial loses, increased costs, reduced productivity, reduced effectiveness and efficiency, and poor results.

Social risk refers to risks encountered due to factors such as age, gender, religion, culture, and race (Khatta 39). Social risk management refers to a framework that focuses on preventing people from effects of social risks by presenting protective and coping strategies.

According to research, poor people are the most vulnerable to effects of social risks (Hopkin 44). Several classes of factors expose individuals to social risks.

Examples include health, life cycle, economic situation, environmental aspects, as well as administrative and political factors (Khatta 42). Health risks expose individuals to injuries, disabilities, and illnesses.

In extreme cases, people are exposed to pandemics that have severe effects. Life cycle is associated with birth, age, and death. Economic situation determines availability of employment opportunities to individuals.

Discrimination is one of the risks experienced under administrative and political factors. Discrimination leads to politically induced malpractices such as denial of social privileges such as human rights and freedom (Schutt 82). Discrimination is also associated with religion and race.

Attributes of social risks include lack of cohesion in communities, racial and social segregation, religious intolerance, and division of people into socio-economic groups (Khatta 53).

Gender is another common aspect of social risk. Researchers from the University of Amsterdam and Columbia Business School found out that women take fewer risks than men (Hopkin 54).

In comparison, women perceive risks to be higher in the financial and ethical areas but lower in the social arena. Women take more social risks than men, while men take more financial risks than women.

Social risks that women take include advancing careers at advanced ages and giving their opinions regarding religion or gender equality at meetings and in public (Hopkin 55). Men and women behave differently when faced with social risks.

This difference in behavior is attributed to varying perception of social risk (Schutt 89). Each gender perceives risk as less or more risky depending on length of exposure.

Conclusion

Risk refers to probability that a certain activity will lead to a certain loss. On the other hand, risk management refers to the process of identifying, assessing, and prioritizing risks, as well as consequent application of measures to monitor, minimize, and control effects.

Risks emanate from several occurrences such as financial uncertainties, failure of projects, legal liabilities, credit difficulties, accidents, and other unpredictable events. Two common types of risks include social risk and operational risk.

Operational risk is associated with risks encountered by organizations owing to execution of internal activities.

It focuses on risks incurred due to operations executed by organizational systems and people. Social risk refers to risk associated with religion, gender, race, place of origin, age, and socioeconomic class.

Works Cited

Frame, James. Managing Risk in Organizations: A Guide for Managers. New York: John Wiley & Sons, 2009. Print.

Frenkel, Michael, and Rudolf Markus. Risk Management: Challenge and Opportunity. New Opportunity: Springer, 2007. Print.

Hutter, Bridget, and Power Michael. Organizational encounters with Risk. London: Cambridge University Press, 2005. Print.

Hopkin, Paul. Fundamentals of Risk Management: Understanding, Evaluating, and Implementing Effective Risk Management. New York: Kogan page Publisher, 2012. Print.

Khatta, Robert. Risk Management. New York: Global India Publications, 2001. Print.

Schutt, Harold. Risk Management: Concepts and Guidance. New York: DIANE Publishing, 2003. Print.

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Risk Management and Its Types

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